Wednesday, August 27, 2014

Earning More vs. Spending Less

The first advocates saving more (often known as the frugal scrooge). The other one convinces you that 'no one saves their way to riches' - earn more, he says.

So, which side should you take?

I'm here to give you the third perspective and it all depends on whether you are in your 'formative years'. For the sake of this post, I'll define 'formative years' as anything below the age of 30.

If you have read my earlier post on 'Minding The Gap', you'll know that it is not solely about earning more or spending less, it's really about widening the gap between income and expenses.

There's no point in earning more, only to spend it frivolously. On the contrary, there's also no point in spending your time and mental energy to cut coupons so that you can skim a paltry layer off an already meagre paycheck.

The third perspective is about employing both strategies at varying intensities, depending on your current situation.

If you have 100% worth of effort, how would you allocate it towards Earning More and Spending Less?

Earning More basically means that you spend more effort/time/energy running on the treadmill (to entertain your paymasters enough for them to give you a raise). It could also be investing time and money into building a side business/investment portfolio that will provide that extra income every month.

Spending Less does not mean that you actively seek out cheaper alternatives. We should really redefine the term 'Spending Less'. I've always believed that when you do this actively, it takes a toll on your emotions, your mental well-being. Constant deprivation is penance for no specific reason.

Spending less should be something that is done passively - understanding that happiness does not flow out of material possessions. Embracing a minimalistic lifestyle is that passive form of 'spending less' that I'm referring to.

You shouldn't be putting too much thought into saving a penny or two.

If you're in your formative years, you'll need to spend at least 70% of your active effort on Earning More and 30% of your effort on finding ways to reduce expenses - Spending Less. (This does not mean that you save any less, I'm saying that you shouldn't be spending active time/effort finding ways to reduce expenses)

And once you have saved up enough to build a nest egg/freedom fund, then you'll have a bucket system that will consistently provide enough, and then some.

So, the next time you hear someone spitting out the words, "You should focus on earning more" or "You should spend less and save more", just smile and know that either one is bullshit.